Integrating Cryptocurrency: Analyzing Financial Structures of Firms

This report analyzes the currency management practices of Diageo, SABMiller, and Hermes, investigating the potential of Dash cryptocurrency as an exchange rate instrument against fiat currency. It examines the advantages and disadvantages of Dash for these companies, considering its international use value, particularly in countries like Venezuela. The report recommends that these companies consider integrating cryptocurrency into their treasury management for optimum working capital utilization and risk management in their e-commerce operations. While acknowledging the risks and lack of widespread knowledge surrounding cryptocurrencies, the report concludes that a well-designed currency management practice incorporating cryptocurrency can significantly contribute to corporate sustainability and cost efficiency.

CRYPTO CURRENCIES

Table of Contents
1.0 Introduction................................................................................................................................3
2.0 Analysis of Currency Management Practices of Companies....................................................3
3.0 International Use Value of Dash against Fiat Currency............................................................5
4.0 Advantages and Disadvantages of Dash for Companies...........................................................5
5.0 Recommendation.......................................................................................................................6
6.0 Conclusion.................................................................................................................................6
References........................................................................................................................................7
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1.0 Introduction
Expansion of business activities globally has made the monetary transactions complex.
Cryptocurrency is the latest inclusion to the digital payment system wherein a kind of digital
currency is booing used to transact with other parties. These currencies are secured by way of
cryptography and hence, it may be considered to be one of the most critical inventions on the
currency framework for the future.
2.0 Analysis of Currency Management Practices of Companies
There is a number of cryptocurrencies and Dash is one of the open source cryptocurrencies
which follow Bitcoin protocol. Dash allows faster transactions than other players in the market
and free from loopholes of Bitcoin in terms of the strong governance structure.
For example, Diageo, the British alcoholic beverage company and world’s one of the largest,
uses Sterling as functional currency and the financial statements all other entities are translated
using the average rate of exchange. As a result, the income statement is affected by way of
translation gain or loss.
(Source: Diageo.com, 2019)
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SABMiller, on the other hand, is a London based multinational beverage company that is being
largely affected by the changes in currency fluctuations. The company follows pre-determined
foreign currency management policies and uses the same to mitigate the currency and related
risks. USD is the functional currency for the firm and the firm uses various hedging techniques
in dealing with the situations.
(Source: Solutions.vwdservices.com, 2019)
On the other hand, Hermes is a French fashion retailer that deals in Euros as functional currency
and its results of operations are also affected by way of fluctuations in currency values. The
changes in foreign currency adjustments in the year 2017 have been presented herein.
(Source: Finance.hermes.com, 2019)
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3.0 International Use Value of Dash against Fiat Currency
Fiat money or fiat currency is a currency without its intrinsic value. Fiat currency is generally
used by the Governmental as representative money. Dash, on the other hand, is one of the widely
known cryptocurrencies in digital currency landscape. There are different countries where the
cryptocurrency has replaced the traditional fiat currency. For example, Venezuela is a prime
example where the Dash has become the second biggest market after the USA and replaced the
typical fiat currency (Khan, 2018).
It may be noted that Dash occupies 15th position in terms of market capitalisation of
$797,216,063 where Bitcoin ranks first with the market capitalization of $71,068,857,849
(CoinMarketCap, 2019).
4.0 Advantages and Disadvantages of Dash for Companies
As stated earlier, Dash is widely used and successfully implemented in countries like Venezuela
and hence may be conceived to be tried, tested and trusted. Since the digital asset may be used
globally, the management of these companies may also consider using Dash in their cross border
operations. Dash is cheap in terms of low operation cost and these companies may be benefitted
out of the same.
However, the most critical aspect of the cryptocurrency is the lack of knowledge. Most of the
people do not know how to use it and hence it is very challenging for the management to
implement the same. Another drawback is that the payment once made, cannot be reversed and
hence the user should need to be double cautious while making the payment.
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5.0 Recommendation
The management of the companies discussed above does not use cryptocurrencies as a treasury
management tool. Rather, the management of these companies focus more on traditional
methods like arbitrage and hedging to minimise the currency risk, However, it is recommended
that cryptocurrency may be used by the companies for the purpose of optimum utilisation of
working capital. Since these companies are engaged in e-commerce business with a global
presence, management of digital currencies may be the effective practices for the firm as far as
risk management is concerned.
6.0 Conclusion
Based on the discussion and analysis performed in the preceding sections of the paper, it may be
construed that the cryptocurrencies have created a disruptive innovation in the digital currency
market by smoothening the online currency transactions. Though there have been certain risks
associated with the same, it is, therefore, advisable for the corporate houses to closely monitor
the regulatory guidance in this regards, get familiar with the transaction methods and observe the
market trends. It may finally be concluded that a well-designed currency management practice
with an emphasis on the cryptocurrency in the current portfolio of the companies will
significantly contribute towards the corporate aims and objectives of the sustainability in the
long-run in most time and cost efficient manner.
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References
CoinMarketCap. (2019). Cryptocurrency Market Capitalizations | CoinMarketCap. [online]
Available at: https://coinmarketcap.com [Accessed 22 Mar. 2019].
Diageo.com. (2019). Annual Report 2017: Diageo. [online] Available at:
https://www.diageo.com/pr1346/aws/media/3960/diageo-2017-annual-report.pdf [Accessed 22
Mar. 2019].
Finance.hermes.com. (2019). Annual reports 2017: Hermes. [online] Available at:
https://finance.hermes.com/en/Reports-and-Presentations/Annual-reports [Accessed 22 Mar.
2019].
Khan, F. (2018). DASH replacing Fiat money in Venezuela - Data Driven Investor. [online] Data
Driven Investor. Available at: https://www.datadriveninvestor.com/2018/09/08/dash-replacing-
fiat-money-in-venezuela/ [Accessed 22 Mar. 2019].
Solutions.vwdservices.com. (2019). Annual Report 2017: SabMiller. [online] Available at:
https://solutions.vwdservices.com/products/documents/98f23911-ec2f-4b12-b6cd-
d3ab9c222971/?
c=VYQcSSlruCPUpw5EsRDGl8LNXP3jbiVeySpaQzMrEiS9IIfic3uLgrhlxFzvF2E6 [Accessed
22 Mar. 2019].
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